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Heritage splits reinsurance three ways, cat bonds, traditional & FHCF


Heritage Property & Casualty Insurance has completed a $1.76 billion property catastrophe reinsurance program for 2015-16, succeeding in reducing its reliance on the Florida Hurricane Catastrophe Fund (FHCF).

The reinsurance program is well diversified across traditional reinsurance capital, insurance-linked securities (ILS) and catastrophe bond investors, and the FHCF as well.

Given the low pricing of Florida property catastrophe reinsurance cover, making it conducive to buying more protection, Heritage explained that its coverage now “exceeds requirements” put in place by the rating agency, Demotech, Inc., and the Florida Office of Insurance Regulation.

“We are pleased with the balance and magnitude of our reinsurance program.  Our reinsurance program is unique in that approximately one-third of the reinsurance was placed with traditional reinsurers, catastrophe bond investors, and the FHCF,” commented Heritage Chairman and CEO Bruce Lucas.

In fact, it’s not quite equally divided into thirds, the catastrophe bond coverage amounts to $477.5m, according to our leaderboard of cat bond sponsors in which Heritage positions 20th, which is just over 27% of the program.

It’s close enough though. Heritage CEO Lucas explained recently that the Citrus Re catastrophe bond issuance in 2015 provides cheaper and more valuable reinsurance protection than the FHCF, giving Heritage an opportunity to reduce its participation in the cat fund.

“Our 2015 reinsurance program reduced reliance on the FHCF and expanded multi-year, fully collateralized catastrophe bonds,” Lucas explained in today’s announcement.

It’s also worth noting that Heritage does not have any quota share reinsurance coverage in place, something its competitor Universal Insurance discussed earlier this week.

Quota share is seen as handing off premiums to another party, where excess of loss reinsurance provides a chance to pay for the protection, which will kick in when it’s required, allowing the insurer to maximise the profit from retaining all of the business.

“The completion of a $1.76 billion reinsurance program protects our investors and policyholders, and utilizes excess of loss cover without reliance on quota share reinsurance,” Lucas explained.

Read all about Heritage’s three Citrus Re cat bond issues:

Citrus Re Ltd. (Series 2015-1).

Citrus Re Ltd. (Series 2014-2).

Citrus Re Ltd. (Series 2014-1).

Also read:

Cat bonds cheaper, more valuable, relative to FHCF reinsurance: Heritage.

Heritage cites FHCF savings thanks to Citrus Re 2015 cat bond.

Heritage P&C’s Citrus Re 2015-1 cat bond to complete at $277.5m.

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